Can't Finance Equity Research After MiFID? Try Crowdfunding

(Bloomberg) -- Can’t get enough investors to pay for your stock coverage? An independent research house is giving crowdfunding a try as it adapts to the new world of MiFID II.

French firm AlphaValue SA is introducing a model in late September where it names a stock, lists how much it will charge to provide research and invites a number of investors to co-finance the cost, head of marketing Maxime Mathon said in an interview. It aims to raise about 15,000 euros ($17,400) to 20,000 euros for providing a year’s coverage on a stock.

By asking investors to pay for research separately instead of bundling it with trading, Europe’s Markets in Financial Instruments Directive has upended the economics of research and reduced demand for analysts, causing a rethink across the industry. AlphaValue devised the crowdfunding model as an alternative to an increasingly common -- and critics say conflicted -- one where corporates pay for coverage themselves.

“It’s much more clean,” Mathon said. “The buy-side wants an independent approach not based on the consensus or quality of the relationship you have with the company.”

Funders of each report will have the option of keeping it to themselves or publicizing it to boost the stock’s visibility, according to Mathon. Research hasn’t been profitable so far this year, but the buy-side may return to firms like AlphaValue once it has a clearer idea of what coverage it needs, he said.

“If it works well by the end of next year, we are moving to a more specific approach, meaning if you want carbon credit or governance analysis, you can tick this option,” he said. “We’re going to follow the needs of the buy-side by giving them the possibility to express what they want.”

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